EU moves towards “toxic asset” deal

Eurozone states back common approach to banks' bad debts ahead of pan-EU meeting.
European Voice StaffFebruary 10, 2009

Eurozone ministers last night prepared a common approach to the treatment of banks’ “toxic assets,” with the aim of reaching agreement at today’s meeting of EU finance ministers.

Joaquín Almunia, the European commissioner for economic and monetary affairs, said after the meeting that he hoped finance ministers would adopt conclusions on toxic assets. Jean-Claude Juncker, the prime minister and finance minister of Luxembourg who chairs meetings of Eurogroup, the eurozone finance ministers, said: “We hope we will be able to reach agreement tomorrow.”

Almunia’s staff in the European Commission have been working with the European Central Bank to develop guidelines for member states. Asked whether he wanted member states to use the same methods to address the problems of such illiquid assets, the commissioner said: “It’s not a one-size-fits-all proposal, but we need to guarantee a level playing-field compatible with financial stability objectives, and we need to be careful to respect state-aid rules.”

Almunia wants member states to agree principles to ensure that toxic assets are not valued more highly in one country than in another. That would, he said, require independence for the bodies doing the valuations, transparency in the method of valuation, equal treatment regardless of what technique was used to deal with the assets, and “adequate burden-sharing” between shareholders, other stakeholders and taxpayers. “You can treat this asset relief through different techniques, but the valuation should be equivalent,” he said.

Juncker said: “We are very aware of the fact that the way in which you deal with this [toxic assets] could have a very serious impact on public finances… We are going to look very carefully before we leap anywhere.”

The US government is expected to present its own plans today for dealing with toxic assets. Tim Geithner, the US treasury secretary, will present a “comprehensive financial stability plan” which it is widely expected will contain proposals to set up a “bad bank” to buy up toxic assets. The technique was previously used by Sweden during a financial crisis in 1991-93.